Q4 2022 United Microelectronics Corp Earnings Call
Speaker 3: Please visit our website www.umc.com under the investor relations investor event session. I would like to introduce Mr. Michael Lin, head of investor relations at UMC. Mr. Lin, you may begin. Thank you and welcome to UMC conference call for the fourth quarter of 2022. I'm joined by Mr. Jason Wong, the president of UMC and Mr. Chi-Dong Liu, the CFO of UMC.
Speaker 4: In a moment, we will hear our CFO present the fourth quarter financial result, followed by our president's key message to address UMC's focus on first quarter of 2023 guidance.
Speaker 5: Once our President and CFO complete their remarks, there will be a Q&A session.
Speaker 6: UNC's quarterly financial reports are available at our website, www.unc.com, under the investors financials section.
Speaker 7: During this conference, we may make forward-looking statements based on management's expectations and beliefs.
Speaker 8: These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, including the risks that may be beyond the company's control. For more detail, description of these risks and uncertainties.
Speaker 9: Please refer to our recent and subsequent filings with the SEC and the ROC security authorities.
Speaker 10: During this conference, you may view our financial presentation materials, which is being broadcast live through the Internet. Now, I would like to introduce UMC's CFO , Mr. Chi Tung Du, to discuss UMC's fourth quarter 2022 financial result.
Speaker 11: Thank you and happy new year to everyone. Thank you for joining our call. I would like to go through the 4Q22 investor conference presentation material, which can be downloaded or viewed in real time from our website. Starting on page 4, the fourth quarter of 2022.
Speaker 12: Inside the revenue was $57.84 billion.
Speaker 13: with gross margin rate at 42.9%.
Speaker 14: Net income attributable to the stockholder of the parent was $19 billion and earnings per ordinary share was $1.54 NT.
Speaker 15: The utilization rate came down to 90% in 4Q from 100% in the previous quarter.
Speaker 16: And
Speaker 17: Page 5, this is the quarterly result.
Speaker 18: Revenue declined by 10% sequentially to $67.8 billion.
Speaker 19: First margin rate was 42.9% or 29.1 billion NT.
Speaker 20: We kept the operating expenses at nearly the same level quarter over quarter, which is around $6.79 billion.
Speaker 21: And total operating income declined by roughly 20% to $23.6 billion.
Speaker 22: Net income attributable to the shareholder of the parent is $19 billion or 1.54 EPS in thetab of the subtract this number from the stock price in total employment and trope
Speaker 23: Next page is the four-year result of 2022.
Speaker 24: Total revenue grew by 31% to $278.7 billion.
Speaker 25: And operating income is more than doubled to $104 billion.
Speaker 26: And the grocery was 101% year over year.
Speaker 27: EPS growth to 7.09 in 2022 compared to 4.57 in 2020.
Speaker 28: 7.09 in 2022 compared to 4.57 in the previous year.
Speaker 29: So on page seven, our cash on hand currently spent at $173.8 billion.
Speaker 30: $20.
Speaker 31: We saw total equity now is over.
Speaker 32: 10 billion US dollar mark to $335 billion.4, $20.
And A, B, and page A in Q4 continue to edge up slightly in the fourth quarter of 2022.
On page nine for revenue breakdown, the change was the most significant in the North American market which represents about 30 percent of total revenue compared to 23 percent in the previous quarter. On page nine for revenue breakdown, the change was the most significant in the previous quarter. On page nine for revenue breakdown, the change was the most significant in the previous quarter.
Asian public showed the biggest decline, from 52% of revenue to 54%.
on page 10.
That's the four-year breakdown and the change is less significant compared to the quarterly results. Asia represents 51 percent of the total pie and U.S. represents about 24 percent in the full year of 2022.
On page 11, the quarterly breakdown of IDM versus fabulous and that 19% IDM and 81% fabulous.
For full year on the next page, it remains almost unchanged, with IDM represented about 15% for the full year revenue.
For page 13, communication, computer and consumer didn't change much on quarterly sequential comparison with communication still remain the biggest of 45% of the total revenue.
There are others segments which include auto has continued to grow at a faster pace compared to the rest of the segment. It is now 18% of our total revenue.
For the full year, communication remained around 45% when consumer is about 26%.
On page 15, the quarterly technologies breakdown. Now we can see 20 to 28 nanometer represent 28 percent of the biggest pie of the chart for the Q4 revenue.
40 nanometers is about 17 percent.
The legacy 8 inch or 0.25 and above is behind the most in the 4Q22.
For the full year, 28 nanometer represents about 24%, also the biggest pie of the chart for the full year of 2022.
On page 17, the quarterly capacity breakdown.
We have some new maintenance in Taiwan and also China for Q1-23. So there's some minor decline in available capacity, which will gradually back to normal in Q2 of 2023.
And there will be also some new capacity common stream in the third quarter for our P5 and P6 in time now. webinar parks live for?
So next page is our current full year.
cash-based budget for care packs right now is about $3 billion, with 90% of the $3 billion contribute to all the 12-inch related expansion.
So the above is a summary of UMC's results for Q4 2022. More details are available in the report, which has been posted on our website. I will now turn the call over to President of UMC, Mr. Jason Wong.
Thank you, Chido. Good evening, everyone. Here I would like to share UMC's fourth quarter and 2022 highlights.
In the fourth quarter, due to a significant slowdown across most of our end-market and inventory correction in the semiconductor industry, our wafer shipment fell 14.8% quarter over quarter, while overall fab utilization rate dropped to 90%.
Average selling price increases slightly during the quarter as a result of our ongoing product mix optimization efforts moderating the decline in revenue.
For the fourth four-year 2022, UMC's revenue hit the record high of NT279 billion.
while operating income exceeds NT100 billion.
Growth margin reached 45%, driven by a more favorable foreign exchange rate, expending 22-28 mm portfolio at newly added capacity.
We have taken advantage of the industry upturn over the past two years to enhance our differentiation in specialty technology offering, improve profitability and deepen relationship with our key customers.
Revenue from 2228-millimeter technology increased more than 56 percent year over year, driven by our industry-leading 28-millimeter process for OLED display drivers and image thin-off tensed processors.
Our automotive statement also delivered impressive growth in 2022, increasing 82% year-over-year, to account for approximately 90% of the total sales now.
We expect this segment will continue to be a key growth catalyst in 2023 and beyond.
Driven by the long-term trend of vehicle electrification and automation, UMC is well positioned to serve the market with our comprehensive portfolio of auto-grade process technologies and facilities certified according to the rigorous quality standards.
While we continue to build strong repartition with the world cup of the multileader.
Given the soft global economic outlook for 2023, we expect the current challenging environment to persist through the first quarter as customers' base of inventory are still higher than normal.
while older visibility remains low.
To manage this period of weakness, the company is implementing strict cost control measures and deferring certain capital expenditures where possible.
In the longer term, we remain positive that UNC's differentiated specialty technology leadership, geographically diversified capacity offering, and quality and operational excellence will enable the company to capture demand, fueled by continuous digital transformation across industries.
and be the boundary of choice for leading customers.
Now let's move on to the first quarter 2023 guidance.
Our wafer shipment will decline by high Ting's percentage range.
AC in USD for Rename Black.
Please note that we expect a 3-4% adverse impact on foreign exchange on revenue.
World's profit margins will be in the Mi 30% range.
Capacity utilization rate will be approximately 70%.
Our 2023 cash-based CapEx will be budgeted at US $3 billion.
That concludes my comments. Thank you all for your attention. Now we are ready for questions.
Thank you. Ladies and gentlemen, we will now call for questions. If you would like to register for a question, please press star 1 on your telephone. Thank you.
And our first question comes from Randy Abrams with Credit Suisse. Please go ahead, Randy. Thank you. Okay, yes. Thank you. Good evening. My first question, if you could just discuss your view on the slope of this business cycle. With the high teens decline in first quarter, do you expect it to mark?
stabilization or inventory levels already getting down? And then from the stronger, like auto slash other, are you seeing any weakness start to come in?
Well, uhh...
Currently we are still in the midst of the inventory correction, like I mentioned earlier. However, we see some inventory improvement in some segments, such as a PDDI.
Uh oh.
for high voltage devices in mobile space.
And so we are working closely with our strategic customer to actually address those inventory burdens in addition to the TDBI. And we expect those inventory situation will improve gradually and with high visibility.
second half, 2023. And so we think that the inventory situation is improving, but probably not going to become better until second half, 2023.
The uh, the uh, for the uh
For the 2023, uh...
Well, I mean, even the cyclical nature of the STEMI industry, we have no one to immune from the end market downturn.
While we were able to mitigate our loading in the second half of 2022 amid a downturn thanks to the growth in our auto business, our business momentum, which I also touched on, about 82% yield over year,
for the first half of 2023. We do for steel.
continue to soften demand in the smartphone PC consumer market. That will continue and...
for the inventory digestion reason.
And meanwhile, the immunodigestion will continue to be our first priority. Nevertheless, we expect the first half. If not, the Q1 will be the trough.
Okay, so it sounds like first half is not Q1, so it's still too early to call for sure, but pretty close. It sounds like based on what you see, if that's correct. And then I wanted to ask, your breakeven utilization is much lower now. I think at 70% you have a...
mid 30s gross margin still. So is that influencing or if you could discuss your feel on pricing, given some cycles you might be close to loss making, but how is your view on your baseline pricing and also just pressure coming from customers needing help out? If you could discuss with you how well it kind of continues.
the smartphone and consumer segment, we are experiencing the prolonged inventory correction cycle. And we believe the pricing adjustment at this point will still produce very limited defects in demand creation under the circumstances.
For the UMC's pricing consideration, it's still based on the value proposition and supply chain relevance. We expect the ASP outlook to remain firm in 2023.
While the ASP is not the only consideration in customer management, the yield improvement, technology offering, capacity support are also key factors in strengthening our customer's competitiveness, which will continue supporting that. Meanwhile, we will continue working with our customers to make sure that we are able to176
they remain competitive and relevant in their respective markets.
So for the outlook of the ACE feature today, we will still remain firm in 2023. Now, for the 28th nanometer...
A is B situation. We...
We continue with our cost reduction and productivity improvement efforts to remain competitive in light of the higher inflationary cost throughout the entire supply chain. We will cooperate with our customers and navigate through those pathways in conjunction.
Okay. And I think there's also a question about LTA.
Yes, that's right.
need to change negotiation and how well, most of them I think are tied to the new capacity, how those are holding in.
Well, the LTA is becoming more of a common practice for us in the semiconductor industry because the industry is starting to recognize that semiconductors are essential.
to plan the future of mutual growth.
Strategic customers are willing to sign LTA to secure additional capacity.
and our strong customer engagement and product pipeline have also demonstrated to us and as well as the customer's key objectives. So right now we think the ASP situation is less relevant in those areas.
LTA situation. Even with some of the loading consideration, maybe some of the penalty occurred, but the penalty is not our key objective for those LTA. At this point, it's still insignificant as a percentage already.
And if I just fit one last one on your tax rate, maybe Chi-Tung can address, I think fourth quarter looks like it went up some. So if there was a factor and then just netting out credits going away but also the new program, if you could give a view on the tax into the coming year.
Q4 was like this one of our overseas subsidiaries.
this annual remittance policy about their profit. We took a provision for this potential remittance of the overseas profit. It was mostly,
On paper, it's not really happening yet, but it's just a one-time textbook reading at the year end.
Okay, and then maybe the forward look. Is 15 still the right number? 15% still the right number.
Okay, good. Okay, thanks a lot.
Thank you. Our next question comes from Gokho Hariharan with JP Morgan. Please go ahead Gokho. Thank you.
Yeah, hi, thanks. Could you talk a little bit about what is what you're expecting now for 2023? Any early early early reads in terms of the outlook, your bigger competitor talked about foundry industry being down.
3% or so this year. Just wanted to hear UMC's view. And secondly, in terms of Q1, could you talk a little bit about 28nm utilizations. I think overall utilizations you did mention it will go down to 70%.
Could we talk a little bit about how 28nm is holding up? Is it holding up better than the overall company utilisation?
for the 2023 outlook.
The 2023 will be a summer year for both family and the foundry industry due to the deterioration of the global economics, ongoing inventory correction and weakened consumer demand.
We project the semi industries going forward to decline by the low single digit and while the foundry industry to shrink by mid single digit.
And
The question about the loading on the 28 millimeter
In Q1 in general the 8 inch loading will be lighter than 12 inch.
And we expect 8 inch will operate below the culprit average, while the 12 inch will be higher than the culprit average.
Let's see, for the 28-millimeter, it's even slightly better than the 12-inch.
Okay, understood. My second question is on the CapEx. The 3 billion number given that we are running it into a downturn, could you talk a little bit about what is the primary, I think it's mostly 28 nanometer and some
Singapore related expansion, but could you give us a little bit more color on what the 3 billion CapEx comprises of this year? And any qualitative thoughts on, do you think about any adjustment in the CapEx given we are entering the year with utilizations at the...
which are endorsed by the customers as well as be part of that too.
A portion of the 2028, I mean a portion of the 2023's CATX budget is also geared toward to a mix upgrade and the remaining budget will be reserved for the clean room, maintenance and general budget. The rest of the U.S. tax guy was prepared as a cared- entiretysaw on Twitter atsh
So basically it's the P6 and the P3 facilities are the major portions of that.
As far as the capex adjustment, we have a plan to dynamically adjust the capex plan, depends on the macro conditions and market demand. And we do have the flexibility to adjust our capex expansion and the general maintenance budget if it comes to needs.
Got it. Just wanted to follow up on the first half bottoming. As things stand right now, do you feel the inventory in the supply chain will reach normal or a low enough level by end of Q1? Or you think that there are several...
areas where it still needs another quarter of inventory clearance to kind of get over that.
I think like I said earlier, some areas are improved and some are still high. I think by the end of Q1, I think it will be better than Q4 and I think by Q2.
I think we expect inventory will improve significantly to more of a normal level. So we expect that inventory will gradually improve.
and the
The second half of 2023, we have a much, we have certain confidence that we'll come back.
Is that confidence driven by any specific projects that you have or you are basically thinking about the overall inventory restocking in the industry happening in second half?
Actually multiple. One is the DOI check with the customer and the other is the engagement of projects and also the market outlooks, the alignment that we have with the customers. So there are multiple factors.
However, we are cautiously optimistic about the second half and we just have to continue monitoring the progress of the DOI situation.
understood. Yeah, thank you very much. I'll go back to the queue. Thank you.
Thank you. Our next question comes from Charlie Chen with Morgan Stanley . Go ahead Charlie. Thank you.
Hey Jason, Chi-Dong and Michael. First of all congratulations for a very strong post-corp result and happy Chinese New Year ahead. So Jason, my first question is really about your industry assumption. I think you shared with us and also...
investors about your methodology to focus the industry revenue. So when I think about the foundry industry, I feel like the revenue should be much lower than semi-confluence because
there is at least one month or even more than one month chip inventory at the Cosmos side. So that means the Foundry revenue should be at least 5% or even 10% lower than your Cosmos in 2003 because Cosmos needs to be at least 5% lower than your Cosmos in 2013.
of those imagery before they reorder. So can you explain why your industry assumption is that semi-
Now, high single digit but Foundry will be single digit. Can you start with that question? Thank you.
Well, I mean, it is, like you said, we do have a methodology that calculates that. It is maybe a very complicated answer. The semi is better right now. It is low single digit but we...
will shrink by three single digits, but UMC addressable may be a little bit different. And then if you look at the end market exposure, and every company will probably be different. But don't move.
So we do look at the multi-layer of the data and at this point we're saying the boundary will be about a single digit decline.
Same with low single digit decoder.
I'm sorry about that. So just a quick follow up. First of all, would UNC address the market?
does better or worse than the industry average? And second question is that do you consider some major foundries that will provide a hike in your foundry industry assumption? Thank you.
I mean they are some but not to the full extent.
Going back to the question about the UNC addressable node, currently you anticipate the decline will be in the floating percentage range.
loading.
Okay, got it. Okay. And next, you just said that one q could be bottom of cycle. Do you mean that your second quarter sundry radiation will flat to up?
Is that right, the presentation?
I mean we'll give you the guidance. The question was saying first half will be the top if not Q1.
So sometime in first quarter we hope to beat the trust. Hopefully there's a chance to beat Q1.
Oh, I see, I see. Now I get it. Same thing, Jidong. And let me switch gears to the side thing. I appreciate company's strategy that, you know, Parsco doesn't translate into better demand etc. Right? But, uh...
Some of your competitors are cutting price. Would you foresee some market share growth in some mature nodes? If you want to be firm on your pricing. Thank you.
I mean, our objective is clear. We will support our customers and to make sure they remain competitive and also with their respective market shares. Now, for UMCs consider the AC vs. the loading trade-off.
the way we see it is there is a considerable progress was made in pricing reposition
for UNC and the cost reduction, the productivity improvement in the past two years actually helped us with that. We in turn to preserve the win-win structural probability between the foundry and customers.
And under the recent market condition in our product portfolio, we believe the tradeoff between the loading and the price will end up with limited benefit in demand creation.
because the weakness of the PC and smartphone and consumer sales group. However, we will continue to work with our customers to make sure they secure their market share in their respective market.
Okay, so could you be...
It would be nimble on pricing if customers come back to say, hey, is demand if you cut price?
So yeah, I am just wondering how firm are you on the supply chain?
I mean we've learned in terms of our guidance right now for 2023 and we also, you know,
It's our intent to preserve that structure of the probability and protecting the pricing position in terms of ASV management and we'll continue to manage that with our customer code.
Okay, thanks. And my last question is probably for Chi-Tong. So based on both discussion, assumptions, etc., can you give us a kind of a, you know, like full year gross margin question for Chi-Tung. Yes.
guidance and do have a minimal gross margin target based on your depreciation, pricing assumption, etc. Thank you.
Yeah, we don't have – we don't give out if we are gross margin outlook, but we do have the – Yeah, we don't give out if we are gross margin outlook, but we do have the –
depreciation assumption for 2023, which right now after the cut in KPES will be a low single-digit decline compared to year 2022..
Mmm, mmm, mmm.
So does that mean... okay, okay.
Does that mean the first half is also the pattern of the gross margin?
So overall, as JSM just mentioned, from Vincent's standpoint of view,
We hope the trough will be first half, sometime first half of this year, if not first quarter.
So the margin should reflect to the distance momentum, but maybe one or two quarters difference. It could be some time late.
how you reflect the cost versus the revenue improvement. But overall, we certainly hope the trough will be determined as
I see. I see. So Jason, I come up with one question. I think there are some investors they don't send a bell.
one of your IDM customers because they also have some challenges about their own fab utilization. So they may receive back some 40nm or 70nm or 70nm or whatever.
22nm project back to their own fabbing 2024. How do you address that concern? I think that the end product should be like a smartphone ISP or a mOLED drive IC. Thank you.
There's always a cyclical nature of this industry, so we're no stranger to that. But we have to just deal with old business circumstances.
The way we see it is we believe the product mix optimization is a continued pursuit for you to enhance the long term fundamentals.
And we'll continue our business development, follow the mega trend, not just limited to one customer, but there is that ability to diversify the market focus as well as the customer base. And continue to strengthen our specialty technology offering quality operations.
So then we can be the best foundry for those.
and for those products to be produced in UNC.
And now we do believe and we have a strong engagement product pipeline to support that long term fundamentals. So any short term volatility we will continue to work with the customer to make sure that both remain very compassionate and relevant to the market.
But you should have to make a decision about your 17 nanometer capacity, right? So do you have any visibility right now for 17 nanometer capacity expansion?
That's more of a question about the technology migration. In our view, the technology migration will continue. Once we have aligned with our customers, then we will also put adequate capacity to support that migration. At this point, we will be able to do that.
I'm not commenting about the customer specific or product detail, but if the question is about the 17nm for the driver and the ISP, we expect the next mainstream note for that is after 28nm will be 22nm.
The 22 now is a mature technology and with the manufacturing facilities already proven.
And we believe the 22 and 28 is a long-lasting node. The 70-millimeter solution could be a sub-statement of the total OLED driver and ISP solution. And before 2024, the volume production for 70-millimeter will be very minimal.
and evening. And right now, we're seeing the 28-O, it is still the most competitive offering in the marketplace. And when considering the overall factors, performance, cost, capacity, availability, and assistance, acceptance.
So our upcoming 22nm solution has already been adopted by the leading partners with their design. Therefore, our confidence with the 22nm will continue to have a business sustainability well into the next wave.
And from a technology migration point of view, we are also working with our customers and partners to find a future roadmap. And we will not be absent from that market anyway.
I see. Okay, thanks for your patience and all the answers gentlemen. Thank you. And happy new year to you too. Oh, thank you. Thanks Jason. See you soon.
Thank you. And our next question comes from Sihong Wu with China Renaissance. Just go ahead, Sihong. Thank you. Hi, gentlemen. I have two questions on 2089O. Given the fact that we are still building up 2089O capacity in multiple locations in...
Taiwan, China, and maybe later on in Singapore, right? So will we be offering a comprehensive portfolio of technologies in each of the FAB locations, or will we be more selective in offering the technology platforms?
Well, I mean the product mix on different sides is very dynamic. We are aligning to the outlooks and the idea is we want to create as much flexibility but report results that would sacrifice the heated scale.
So, you know, many of that is ongoing discussion. So I don't have a specific or fixed mix for you as a reference. But the update is that we have an option to dynamically adjust that.
to the outlook and alignment with the customer. Yeah, more importantly, if I may, we already actually offer more choices for customers in terms of the production site. So if customer plays 22, 28 orders to UMC, they have options.
to be produced either in Taiwan, China, Singapore. So we are one of the very few countries that can offer multiple choice, choices to make up the current geopolitical attention.
And the second one, on the 28n, how easy are we upgrading the capacity to the next generation of 40n of infat?
I mean there's an option to do so and nothing's easy. The next major way is to probably be upgrading from migrating to the new version.
28-millimeter to a 22-millimeter and after that there will be a 14 so there will probably be a couple layers before we Another step before we get into the think-back So but they are they are good percentage of the earth
the two that actually can convert between those nodes. So I think we are in a good position to cover all the way to 14, giving the tool mix. I see. All right. Okay. Thank you very much. Happy New Year. Happy New Year to you too.
Thank you. And our next question comes from Sunil Lin with UPS. Please go ahead, Sunil. Thank you.
Thank you for taking my question. So my first question is on geopolitical evolvements. So I wonder if in recent quarters have you started to see some new older opportunities from clients evaluating the supply chain.
from that trend. However, even the current inventory correction, we expect the progress in engagement in the payback will be more obvious, perhaps in the young 2023.
We will whether now comment on specific product or customer on this, but we are aware of this geopolitical supply chain concern for many of the customer and it's a potential implication from our global customers.
So, and Tom is already in discussion with us to fulfill their sourcing plan. And probably not a good idea at this point to give anything specific.
No problem. Just to quickly follow up, I understand some of the engagements are still in early stage, but anyway, we could try to quantify the upside for coming years.
It's still too early right now because they are giving the current inventory correction. I think many of this is under the discussion in terms of volume and the product and also the process.
And so I think it's still kind of early again. I think many of this will probably take a year to see them realize it. So I think we can probably, once we have a clear visibility, we will be able to update you on that.
Got it. Thank you. My second question is real quick, capacity increase. So based on your current KPEX target, what kind of capacity increase you target to increase for the shirt, and specifically on P6 for 28 nanometers?
And for your Singapore expansion for 2018, are you still targeting for late 2024? Thank you.
For 2023 capacity will increase by 4.9% over here and mainly for the 12A P6 profile. The 12A P6 RAM will start up by mid-2023 and it will reach about 12K a month.
by Q423. The Singapore P3 RAN is targeted to the first tab of 2025.
Got it. Thank you so much.
Thank you. Thank you and our next question comes from Laura Chen with Citigroup. Please go ahead Laura, thank you.
Hello, hi, thank you, good afternoon and happy new year. Thank you for taking my question. My question is also on the 20 nanometer. While we see the demand is still quite resilient, even we see a lot of inventory correction, but we know that many of them still are PC or smartphone related. So just wondering, do you think that the resilience will continue even doing better than smartphone related.
That's my first question, thank you. Sure, and first, happy new year to you too. For the 28-mm loading, I mean, uh,
And we remain confident with our 28 and 22 nanometer vision, given that it's a long-lasting node driven by many applications, such like ISP, Wi-Fi 6, Olay driver. So we expect this 20.
28, 22 nanometer would be partially impacted by the inventory correction in communication segment during the first half of 2023. We do anticipate a good rebound in our 28 and 22 nanometer business starting from second half of 2023. 8.5Directed by
So we, even the current visibility, we have some components that will come back on the second half of 23. For the ASP, we're going to do our part. I mean, we will continue to do our cost reduction, productivity improvement.
effort to make sure that our customer can remain competitive. And we will cooperate with our customers in the case of the head wing, the market head wing, the cost head wing and in conjunction with our cost effort and we will make sure that they will stay competitive with respect to their market share.
position as well. Okay, thank you. That's very clear and also on the IDM business. We note that in the last year the growth are quite solid and quite substantial. I'm just wondering that on what note we see the most growth and also what kind of the application, am I given again on the sickly code down..
across all different technology from 28, 22 to the 55 and the 40 on automotive space. We do see there is a
a continuous opportunity for us to engage. This also aligns to our mega trend and that we have been talking about it. We believe our address of mind will continue to grow, okay? And giving our upcoming capacity planning.
the 28 and 22 were actually continuing enhancing our position in that context. And we are excited to many of the new opportunities that brings to us to increase our relevance on those applications.
We touched that already, the ISP, the Wi-Fi, OLA as well as the automotive. And we, you know, because not just the ID and the, you know, which is what we focus to align with the industry maker trend.
Okay, great. Because for one of the IDM customers probably also see some weakness on the automotive for the industrial. So I'm just wondering since some of the IDM also ramping up their own 12-inch capacity, so that will be slightly impact our short-term business.
We know like the mega trend in the longer term is still quite solid. So just wondering, will you also see that kind of MCU or automotive business to come down after maybe later in first half into second half?
I mean, not really. I mean, it's not on...
Well, I mean given the alignment that we have with our customers and with closely working with them, the capacity growth even within the IDN is actually incorporated to our sourcing strategy with us. So we are part of their sourcing strategy.
And so we do not expect the...
the ideas, the in-house capacity expansion will become a threat to us.
And I think giving our long-term alignment with the customer and while the customer also recognize the semiconductor supply chain is essential now, and I think they've been sharing the data with us in a much better way and it's more transparent, high visibility.
No, I mean at this point we don't anticipate any impact on that. Okay, great, really appreciate it. Thank you and have a nice Chinese New Year ahead. Thank you. You too, thank you.
Thank you and I have a nice Chinese view of your head. Thank you. Thank you. Thank you. Our next question comes from Bruce and his co-mindset. Please go ahead. Thank you. Thank you. Thank you. Hello, hello, come on. Hello, this is Bruce. Can you hear me?
Yes, hi Bruce. Okay, happy New Year. Happy New Year to you. I still need to go back to the pricing. I'm surprised to talk about a four year pricing will be firm. I want to know the basic assumption for this pricing. This is a...
confirmed for the full year.
Well, I mean the...
The pricing has a...
the mix, right? I mean, uh...
The way I have to look at it is there's a mix of pricing and
our ASP basically reflects the product mix as well as the pricing adjustment. And for the blended ASP guidance that we're taking into account, there's a short-term variation of a 12-inch product mix, and...
and also the adjustment and also the new P6 RAM. So there are multiple factors that we have blended together. So what we provided to you is more of a blended ASB guidance. So you're right. So this is now licensed.
and also the adjustment and also the new P6 RAM. So they are multiple factors that we have blended together. So that's what we provided to you is more of a blended ASD guidance. So you're right. So it's now light to light, yes.
Okay, so what about the like-to-like based pricing for the second half of this year?
If it takes all those years to come back, this kind of information
First of all, it's very difficult to predict. Secondly, we can only give you a blended A-SPI guidance as we always have.
So the like-to-like overall conceptually, we can talk about it on a quarterly basis.
I see. I understand that. I understand that. So the second thing, I have a quick question for R&D expenses for the whole year. You know, your competitor was talking about like a big jump in terms of R&D for 2020. What about the operating expenses for UNC for the whole year?
Yeah, we intend to somehow keep the...
absolute numbers in terms of operating expenses.
absolute numbers in terms of operating expenses. Of course.
The employee related compensation will be affected by the four year profit sharing program. And other than that, such as R&D and some other projects, the expenses will be somewhat breakfast.
On top of that, because of the short-term volatility, we are implementing a pretty stringent
cost control for other areas, but not on the R&D program.
Okay. Lastly, you have a lot of fab in different regions. Do you consider to like price in the different, with a different pricing with different geographical location? TSMC was talking about like, you know, flexibility in terms of different.
multiple locations has a value which means they want to sell those kind of value. Do you consider to do that kind of pricing strategy as well?
Well I mean, like you said earlier, the P6 and P3, the 12A and the 12I, definitely have a different pricing scheme.
because the production rent for the P6 and P3 will indeed incur down the higher depreciation costs for us.
So for us the new field capacity is under the LTA base and with the building the wafer price Even that our customers do recognize the Our value as well as the belief our total solution is competitive for both of us to capture the market growth
and they agree to that. Those fast investments are also based on such alignment and so to drive our cat hacks and our eye decisions. And so yes, from those new field capacity, there are different pricing schemes.
So those investments are also based on such alignment and so to drive our cat hacks and our eye decisions. And so yes, from those new field capacity, there are different pricing schemes. But not for the rest of us.
So only for the newly added capacity other than Taiwan with the different pricing strategy. Okay, I understand. Even in Taiwan because of P6 in Taiwan and... Yeah, yeah, yeah.
Okay, that's all from me. Thank you. Thank you, Bruce.
That's all from me, thank you.
Thank you. And our last question today comes from Gokou Hariharan of JP Morgan. Please go ahead Gokou, thank you.
Thanks for taking my follow-up question. First of all,
Could you talk a little bit about timeline for your 70nm FinFET and what kind of demand you are getting from customers? Is this happening in the next couple of years itself? Or is it something that will happen beyond the next couple of years you focus on 22nm migration?
And lastly, also wanted to check whether this 70nm is something that you have committed to customers as part of some of your LTA arrangements, whether it is for FAB 12a P6 or for the Singapore new FAB that is coming up.
I mean, first of all, it's our understanding that before 2024, the volume production for 17-millimeter will be very minimum, if any, because the 17-millimeter production is still under the exporteratory stage. And the current discussion that we have is...
many associate with the trade-off between the power consumption, transistor performance, cost, and capacity plant. So, it's still in a very early stage even to predict when it will start to production.
overall view on 28nm industry demand because we are now hearing TSMC also building a lot of 28nm capacity in Japan, Nanjing as well as potentially considering Europe , you guys are considering Taiwan as well as Singapore, there is a lot of announcements from some of your competitors as well.
When we look at all this together, it looks like 28nm capacity will be 50-60% higher than any of the prior nodes in terms of installed capacity. Do you agree with that and do you think that the demand is that big that we can fulfill all this capacity, especially as we are also heading into a bit of a downturn?
Well, I mean, we definitely don't look at this from the physicality point of view. We look at it from a long-term standpoint. We remain very confident in the 28 and 22. I can't really comment.
I won't be able to comment on our competitors situation, but we are confident with our own business, mainly on our highly differentiated and customized technology solution. And together with what Shidong mentioned earlier, we have a geographical diversified capacity offering. And with the current customer alignment, we are confident with our own business.
and mutually committed to the new capacity build. And we've seen the 28 and 22 is a sweet spot for many of our customers and their applications. And which we believe those demands continue to grow. With the strong product pipeline in 28.
The short-term market turbulence will not change our long-term view and the relevance on the 28 and 22 and based on the alignment we have with our customers.
Ok, that's very clear. Thank you and happy Chinese New Year as well. Yes, and to you. Thank you.
Thank you. That concludes today's Q&A session. I will turn things over to UMC ahead of relations for closing remarks.
Thank you everyone for attending this conference today. We appreciate your questions. As always, if you have any additional follow-up questions, please feel free to contact UMC at ir at UMC dot com. Have a good day. Thank you.
Thank you ladies and gentlemen. That concludes our conference for fourth quarter 22. Thank you for your participation in UMC's conference. There will be a webcast replay within two hours. Please visit www.umc.com under the investors events session. You may now disconnect. Goodbye.